Buying My First House - What Do I Need To Know?

**Mythe_Seraph** · 2019-01-04 08:18

Breaking a lease could have credit implications and I wouldn’t advise it.

Shop local creditors.

High probability of a buyers market this summer (around your lease end).

Don’t put that much down on your first home. All you’re doing is paying your interest rate down on money that’s going to appreciate in value far beyond the interest accrued on your end (potentially very large gains depending on market and when you buy etc, esp this sunmer). Having a PMI isn’t bad. It’s negligble in the grand scheme, and if you stay in your first home for a while it can also be eliminated fairly quickly using the advice above. Chances are you wont, and the above example doesn't usually apply to first time home buyers (judging by the example above I'd say that this couple is in a relatively expensive, long term home). For your first home though, I have no idea why you'd want to spend so much money up front on an asset that's going to appreciate in value a great deal, potentially very, very quickly (esp this summer and into next year).

If you’re not looking to pay more than necessary each month (via example above) at least look at doing split payments (two per month or even once a week) to decrease interest paid. Split payments can do wonders for you. But if you are interested in paying more even an extra $200-300 a month can save you tens of thousands in interest over 30 yrs.

Don’t fall in love with your first house. Or any house for that matter. Look at it as an investment you live in. You’re turning money into mortar.

After you buy keep an eye on the market. You’ve got high flipping potential if you buy in the summer (esp this sunmer) and sell within a year or so.

Example: we bought a house in June. It’s appreciated nearly 60k in value (10k put into the house by us) We’re going to sell it and move somewhere better and probably do the same damn thing only with $50k more in savings and investing potential.

Also, congrats! This is a huge milestone in your lives. Well done on your hard work man.

**Kirin** · 2019-01-04 08:24

Lot of great info Buffy, thanks.

The calculators we've looked at have us anywhere between 4.2 and 4.8 on interest and looking at a 1300-1400 monthly payment with taxes/insurance/etc included.

**Mythe_Seraph** · 2019-01-04 09:18

A few other things to keep in mind:

Don't buy the most expensive house in your neighborhood.

Keep the size of the house in mind for re-sale.

Be mindful of the surrounding school district.

**TsingTao** · 2019-01-04 09:47

Hire a real estate attorney, no exceptions. They're cheap and at a minimum they will make signing 390 pieces of paper a far less daunting task. You for sure want one in case things don't go smoothly...as a first time home buyer there's any number of ways that can happen during this completely new, rather complicated process. Have a lawyer from the start so you don't get fucked (can explain how it saved me if anyone cares).

Hire a good home inspector, preferably someone independent that is there to do a job for you and not just rubber stamp a sale for one of the real estate agents. If the inspection shows significant issues that you aren't willing to tackle (or the seller isn't willing to fix/pay for) walk away, even if you love the house. You don't want to walk in to a money pit just because you think you love the house.

As was stated look at the neighborhood and school district with an eye towards kids, even if you don't have any yourself. A lot with room to play, nearby park/playground, good schools that are close, that sort of thing.
Even if you are years away from your own kids it's a big deal for resale.

Don't get turned off by easy to fix cosmetic issues. A great home may be hiding under ugly paint and decorations/furniture styles that make you ill, or someone may just be too lazy to pick up all their shit and the house shows badly. Try and look past the easy to change cosmetic issues. The wall color is pretty irrelevant...how the walls are laid out and constructed are what's important. This is often easier said than done, but try and be aware of it anyway.

**Kirin** · 2019-01-04 09:50

Well, it is out first house but were also both 34. So while it is a "starter home" in a sense, we fully expect to be there for the foreseeable future (5+ years).

And thats a good point I failed to mention about the mortgage payments. We're aiming for that 1300-1500 range specifically so we can pay extra on it and pay it down quicker.

Is it fair to say the PMI argument can boil down to a lower monthly payment vs lower upfront money?
And why would the amount put in as a down payment at 15-20% be worse than 5% outside of that? Isn't that instant equity in the price that we now have?

**Mythe_Seraph** · 2019-01-04 10:22

Your PMI is going to be a near negligible expense in the long run.

It really depends on how you view housing, and investment. I'd recommend seeing it as the later, rather than the former.

I would argue that, while you feel like your first house will last you 5+ years, you will learn rather quickly that you'll, "grow" into having a house and you'll also find what you -don't- like about your home within a year or two. There's typically something unforseen that will cause for you to want something else.

I'd recommend not putting forth all your money (Definitely not the full 20%, that's far too much) into an asset that is highly likely to appreciate. Here's my rationale on this, and I'll use my recent home purchase as an example.

We had $60k to purchase a home with. We put down $15k and borrowed $235 approx ($250k home). We pay a Mortgage PMI (I think, $80?/Mo.). This will be paid until 20% of the loan has been paid.

Now, we could've eliminated the PMI by putting down $50k, but we chose not to. We, instead, put $10k into the house (bathroom, kitchen, floors, minor yard work). It has since appreciated by $60k and is valued at $310k.

Basically, we had two options:
Put down $15k and pay $80/mo to have access to $45, allowing for comfortable living and home upgrades OR
Put down $50k and pay $0/mo to have access to $10, completely eliminating any upgrades to the home.

In either scenario the home increases in value by approximately $60k (probably less in the scenario where I put 20% down, as I wouldn't have put in upgrades). Why invest MORE money to make the same gains? So I have a lower interest rate in a home that I definitely won't live in for 30 years? Using this logic, I'd highly recommend that you avoid putting all your money into the home. There are other benefits to this as well:

Let's say that in either scenario the market completely tanked, or worked in the reverse way. I'm happier having less invested in the house as now I have not only lost less money on the asset itself but I also have more money in savings to help provide for myself in case of any type of emergency (loss of job due to poor market, etc.) Is that PMI really hurting me at this point? Nope, not at all. Is the slightly higher interest rate hurting me? Nope, because I can still afford to increase my monthly payments and/or split pay to decrease the overall interest while I am now, for the foreseeable future, stuck in this house.

I don't know where you live, but all trends and forecasts (while, not always correct, obviously) point towards a buyer's market coming this summer. It's a great time to buy a house, and it has been for about two years now (it's only going to get better... probably).

TLDR: 20% down on a home is largly a thing of the past (we don't pay 15% interest rates anymore), and unless you're fully committing to the house that you know, for sure, you will not be moving out of, there's no reason to sink that much money into your first house. It doesn't make any fiscal sense to invest more money to receive the same return.

EDIT: All of this is operating under the assumption that your payments aren't being so drastically changed that it is the difference between an affordable monthly payment vs an unaffordable monthly payment. Rule of thumb is no greater than 35% of your gross income.

**Omnipotent** · 2019-01-04 10:46

Come up to CT. I pay $9,000 a year in property taxes alone on my current home.

As stated before, there are conventional loans that only require 5% down with no PMI. You get a higher interest rate but are allowed to refinance down the road to reduce. If I put 20% down my interest rate would have been 3.8%, with 5% down it would have been 4.1%.

1st time home buyers also, in some states, qualify for a DAP program which is a Down Payment Assistance Program. You effectively get another loan on top of your mortgage for closing costs and the downpayment to avoid PMI. I did that on my 1st home and it was only like $75 extra a month on a home I bought then at 175k.

Use an insurance broker to find the cheapest insurance for you and I highly recommend having an intense inspection done. Have them look at the CHIMNEY, SEPTIC(if applicable), Foundation, and all the structural things vert in depth. Do not nickle and dime the sellers on petty crap like broken lights and a baby hole in the wall from a nail.

An important thing to remember. You are most likely moving from a 500-1000 sq ft living space to potentially 1,500+. Do not panic when you move in with empty rooms, slowly attack a room at a time and focus on the important ones first. My wife and I moved from my 1,008 sq ft ranch to a 2,800 sq ft colonial and we STILL have empty rooms not touched(Moved May 2018).

Remember to set a budget, create an excel spreadsheet of all finances and ensure there is money left over. Water...electricity..OIL.......budget for all of that comfortably.

**Mythe_Seraph** · 2019-01-04 10:51

The empty room comment is so true. You don't need a guest room, or a game room, or an office, etc. right away. Slowly establish and begin with the absolute necessities.

The other thing I'll chime in on when it comes to inspection is to make sure that all your shit is done in copper, if your electric or plumbing is done with anything else I'd look elsewhere.

**Kalmado** · 2019-01-04 11:47

Insurance dude checking in! Not knocking Omni's comment about finding cheapest by using a broker. However, especially with home insurance some companies will come in at great prices but it's terrible coverage. Try to find the cheapest, but also go thru a reputable company. The big names like State Farm, Allstate, etc are great but your local companies can give great policies at great prices. Also, if the mortgage banker is telling you your home insurance should be X remember this, they are a mortgage banker and they sell mortgages, not insurance. They have zero business giving insurance rates. That would be like your insurance person saying your house payment should only be X. It doesn't work that way.

The main things with the home insurance is to make sure the dwelling is covered at 100%. In the last 18 months I have not written one home under that. Make sure personal property can be replaced and not just ACV (actual cash value). Even though most times people just take ACV because they don't realize just how much money in "stuff" they have is laying around but because it's easy. However, if you have very specific things you want replaced at market value, think an expensive TV or a custom PC, you do NOT want ACV because they'll give most likely a fraction of what you paid. You want to be able to replace it at similar specs that you bought.

**Omnipotent** · 2019-01-04 11:53

Originally Posted by Kalmado

Insurance dude checking in! Not knocking Omni's comment about finding cheapest by using a broker. However, especially with home insurance some companies will come in at great prices but it's terrible coverage. Try to find the cheapest, but also go thru a reputable company. The big names like State Farm, Allstate, etc are great but your local companies can give great policies at great prices. Also, if the mortgage banker is telling you your home insurance should be X remember this, they are a mortgage banker and they sell mortgages, not insurance. They have zero business giving insurance rates. That would be like your insurance person saying your house payment should only be X. It doesn't work that way.

The main things with the home insurance is to make sure the dwelling is covered at 100%. In the last 18 months I have not written one home under that. Make sure personal property can be replaced and not just ACV (actual cash value). Even though most times people just take ACV because they don't realize just how much money in "stuff" they have is laying around but because it's easy. However, if you have very specific things you want replaced at market value, think an expensive TV or a custom PC, you do NOT want ACV because they'll give most likely a fraction of what you paid. You want to be able to replace it at similar specs that you bought.

Adding to this, the assumption is that you don't just accept the policy brought to you by your broker and actually work with them to understand everything that is covered and ensure it is on the written document.

**Kalmado** · 2019-01-04 12:01

Originally Posted by Omnipotent

Adding to this, the assumption is that you don't just accept the policy brought to you by your broker and actually work with them to understand everything that is covered and ensure it is on the written document.

God I wish more people were like that, especially with auto. If anyone here thinks they have "full coverage" you do not! There is no such thing. Go over your policy with your agent to understand what coverage you do and do not have. So many times people with get into a wreck and think they have rental car coverage because "I have full coverage". It's a term shit insurance agents use because it's easier for them to say that and get people out the door instead of doing their job and explaining the coverage.

**TsingTao** · 2019-01-04 13:34

Originally Posted by Mythe_Seraph

The empty room comment is so true. You don't need a guest room, or a game room, or an office, etc. right away. Slowly establish and begin with the absolute necessities.

The other thing I'll chime in on when it comes to inspection is to make sure that all your shit is done in copper, if your electric or plumbing is done with anything else I'd look elsewhere.

Electric yes, you absolutely don't want old knob and tube, or shit work where someone's patched AL wire in to copper.

Plumbing I'd say 'avoid iron or lead pipes'. Copper is fine, but there's nothing wrong with more modern alternatives to copper plumbing, like pex.

**Bardicrune** · 2019-01-04 13:41

Speaking of homeowner's insurance. Make sure to check the local maps to see if the home you are looking at is in a flood plain. FEMA Flood Map Service Center

**Drai** · 2019-01-04 14:06

Originally Posted by Mythe_Seraph

The empty room comment is so true. You don't need a guest room, or a game room, or an office, etc. right away. Slowly establish and begin with the absolute necessities.

The other thing I'll chime in on when it comes to inspection is to make sure that all your shit is done in copper, if your electric or plumbing is done with anything else I'd look elsewhere.

Plumber here, ABS or PVC for Drainage and Pex or Wirsbo for waterlines are way better then copper or cast iron for plumbing, copper is way more costly to maintain and if the entire house is done in copper then that means they probably didn’t do a home run system, which means it will potentially take a lot longer to get hot water to the furthest locations in the house, like you’ll be wasting a lot of water over time just by running taps to get hot water.

**Jaybar** · 2019-01-04 14:15

Originally Posted by Drai

Plumber here, ABS or PVC for Drainage and Pex or Wirsbo for waterlines are way better then copper or cast iron for plumbing, copper is way more costly to maintain and if the entire house is done in copper then that means they probably didn’t do a home run system, which means it will potentially take a lot longer to get hot water to the furthest locations in the house, like you’ll be wasting a lot of water over time just by running taps to get hot water.

Get PVC if you want to hear water flowing through your pipes or cast iron if you don't. It's amazing how much louder rushing water is through PVC. I believe that's PVC's only setback for plumbing purposes. Also make sure you don't have plumbing on cold walls (exterior walls) or if they are that they are fully insulated pipes. If you end up living in Florida or someplace that doesn't know the meaning of freezing temps then scratch that previous statement.

**Drai** · 2019-01-04 14:25

Cast Iron is rough on the inside so is more likely clog due to grease, it’s also prone to get small cracks in it over time which is prime root real estate due to the moisture in the pipe seeping through the cracks, so unless it’s brand new cast iron I wouldn’t risk it, unless your inspector is going to snake everything to make sure.

**Jaybar** · 2019-01-04 14:34

Originally Posted by Drai

Cast Iron is rough on the inside so is more likely clog due to grease, it’s also prone to get small cracks in it over time which is prime root real estate due to the moisture in the pipe seeping through the cracks, so unless it’s brand new cast iron I wouldn’t risk it, unless your inspector is going to snake everything to make sure.

People pouring bacon grease down the sink make my skin crawl.

**Drai** · 2019-01-04 14:53

Not just bacon grease, everytime you wash fruits and veggies the natural oils on their skins can build over time, also toothpaste or shampoos/conditioners, soaps/bodywash, all of those can build up over time. Just do basic maintenance once a year on that shit and you’ll be good.

Also if you live in an area with hard water and have a water tank, not on demand but a tank, flush that shit out once a year starting from the time it’s installed if you want it to last more then 20 years, also don’t crank the heat, keep it around the middle setting, it just makes it worse.